Segment performance Williams & Glyn 2016 compared with 2015 ● An operating profit of £345 million compared with £431 million in 2015. Adjusted operating profit of £402 million was £57 million lower than 2015 reflecting higher adjusted operating expenses and increased impairments. ● Total income increased by £4 million to £837 million as the benefit of increased volumes was mainly offset by margin pressure from the impact of the competitive lending environment and a further reduction in interest rates. Net interest margin reduced by 16 basis points to 2.71%. ● Operating expenses of £450 million increased by £63 million, or 16%, and included a £29 million increase in restructuring costs. Adjusted operating expenses increased by £34 million, or 9%, to £393 million reflecting activity undertaken in H1 to create a standalone bank, partially offset by the benefit of the commercial business restructuring which was announced in Q4 2015. Following the announcement to discontinue the programme to create a cloned banking platform, a further restructuring programme commenced in Q4 2016 resulting in an additional reduction in headcount. ● Net impairment losses remained low at £42 million compared with a loss of £15 million in 2015. The 2015 charge benefited from a number of releases, totalling £28 million, in the commercial business. ● Net loans and advances increased by £0.6 billion, or 3%, to £20.6 billion principally reflecting growth in mortgages of £0.4 billion, or 4%. ● Customer deposits were broadly stable at £24.2 billion, a £1.2 billion increase in retail deposits was offset by a £1.1 billion reduction in commercial deposits. Q4 2016 compared with Q3 2016 ● Operating profit increased by £25 million to £109 million driven by a £14 million reduction in operating expenses and a £8 million increase in income. ● Total income increased by £8 million to £217 million driven by an improvement in net interest margin with volumes remaining stable. ● Adjusted operating expenses reduced by £2 million to £97 million reflecting the restructuring activities following the announcement to discontinue the programme to create a cloned banking platform. Operating expenses reduced by £14 million principally due to there being no restructuring costs incurred in Q4 2016 compared with £12 million in Q3 2016. Q4 2016 compared with Q4 2015 ● Operating profit increased by £56 million to £109 million reflecting a £10 million reduction in adjusted operating expenses, a £9 million reduction in impairments and a £9 million increase in income driven by increased volumes. In addition, operating expenses in Q4 2015 included a restructuring charge o f £28 million in commercial banking. 46 RBS – Annual results 2016